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Tuesday, 13 June 2017

Farms and ostriches: Devendra Fadnavis knows that loan waivers are not a durable solution (The Times of India - 13 June 2017)

     Maharashtra on Sunday announced a total farm debt waiver. Its conditions are not yet fully known but it will escalate costs beyond the Rs 30,500 crore waiver announced for marginal farmers. Next Punjab is expected to announce a waiver to fulfil the Congress’s electoral promise. But chief ministers are surely aware that these waivers are not a durable solution. A national loan waiver for farmers nine years ago, for instance, did nothing to solve structural problems. Instead, through the mechanism of loan waivers, agricultural distress is now morphing into fiscal dangers for states.

     Meanwhile violent farmers’ protests in Madhya Pradesh seemed to catch its state government napping. Over the last decade MP did have an impressive track record in wheat production. Focus on cereals however has blindsided policy makers to two parallel developments which have led to contemporary challenges. Last decade was characterised by enhanced private investment in agriculture in the form of tube well irrigation and intense input use. Simultaneously there was a shift to horticultural production, with enhanced risk of perishability.

     In MP, the value of output from fruits and vegetables more than doubled to 19.6% in the three years ending 2013-14. Even as Indian agriculture witnessed such structural changes, policy remained unchanged in its focus on the cereal economy. And the enhanced risks Indian farmers have been taking in the backdrop of greater variability in climatic patterns made them more vulnerable to shocks. Demonetisation definitely sent shock waves across the rural economy. The way out at this juncture is for the Centre and states to retool their agricultural policies. Intervention has to be smarter and designed to keep pace with the underlying changes.

     Government needs to focus on building infrastructure which links farmers to urban centres consuming horticultural products. It is only with the availability of adequate infrastructure that other schemes such as price stabilisation funds – to provide a floor price for farmers in years of glut – can be effective. India’s farm economy is intertwined with the rest of the economy. Therefore reforms in areas such as power will have a knock-on effect on agriculture too. The key to relieving agricultural distress is to replace the current policy of ad hoc interventions like farm loan waivers with one that holistically supports the transition away from a cereal-led rural economy.

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